Danske Bank's research team anticipates that the Swedish central bank, Riksbank, will maintain its policy rate at 1.75% while adopting a more hawkish tone in its communication, reflecting concerns about upside inflation risks [1]. This expectation comes despite a notable downside surprise in Sweden's April flash inflation data, which showed core inflation at 0% and CPIF at 0.8% year-on-year, both below forecasts [1].
The lower-than-expected inflation was primarily attributed to reduced services inflation, declining energy prices, and a significant pass-through of VAT reductions to food prices, with food prices falling by -5.5% month-on-month, also missing forecasts [1]. These factors suggest potential deflationary pressures in the Swedish economy [1].
Danske Bank notes that while the recent inflation data may influence the Riksbank's policy stance, the central bank is still expected to deliver a slightly more hawkish message compared to its March Monetary Policy Report, despite the low inflation print [1]. The guidance is seen as turning more hawkish, indicating that the Riksbank remains vigilant about inflation risks even as current trends diverge from expectations [1].
CONCLUSION
The Riksbank is expected to keep rates unchanged at 1.75% but signal a more hawkish outlook, according to Danske Bank. Despite lower-than-expected inflation data, the central bank's communication is likely to emphasize ongoing inflation risks, suggesting a cautious approach to future policy moves.